On the other hand, enforcing the existing raft of legislative proscription would likely have resolved a large part of what happened. The problem is that enforcement did not occur. I think the solution to the problem is to determine first the core before unleashing solutions in law by politicians who place themselves and their prospects for reelection before common sense. Witness the current bailout of American business: viable banks required to take part, dictation of terms as detailed as salary level in private business by government, funding of abortion in foreign countries, and Larry Flynt’s – perfectly reasonable, although laughable – request to be a participant. There is, indeed, a so-called “entitlement mentality” that has emerged in this country, and it is abominable that this condition has become so widespread.

If, for instance, Congressional oversight committees assumed the same degree of accountability to which the boards of directors of public companies have recently (and not unjustly) been lifted, I doubt that the progress that sub-prime mortgages made would ever have gotten off the ground. If Federal agencies are staffed, trained and applied to adequately execute the duties they are assigned, and they performed realistic checks of the activities they are charged to regulate, I doubt some of the overt fraud that has recently come to light would ever have occurred.

Management texts are rife with examples of companies who have done well, of managers who are ethical and professional, of business models that work when the leadership is held accountable. Too many organizational issues are involved here to enumerate and compare in this forum, but the point is that there is an underlying reason for all of these instances of malfeasance. The solution is education, not legislation. Legislation results in taking the car off the road because there’s a chance a drunk driver might get in it. We have far too much of that kind of legislation.

It is the work of organizations like the Center for Corporate Citizenship to provide that educational forum. Just consider the strides that have been made in a few short years toward more corporate social responsibility. It is the people who manipulate the system – in good ways and bad – who create the results we are living through today, not the system.

Economic cycles will occur, just as Ice Ages will, and it will not be the end of the world. It is folly to think we can spend ourselves out of a recession. It is folly to think we can legislate the market economy we purport to have. To do that, we have to assume that one body has all the answers to all the possible situations in which the legislation would be exercised. Surely, no one thinks the current legislature, regardless of party affiliation, has anything near that capability.

I fear the trend to socialism, just as Dr. Googins does. I agree that debate needs to be engaged. I hope it comes soon, and in the appropriate quarters.

Thank you, Dr. Googins, for your insights!

Certainly, individual ethics has had a major impact on the current situation. We are hearing much about the damage done by ethical lapses, but there are the stories of great impact for the greater good brought forth by ethical heroism. I think we are witnessing the metamorphosis of capitalism and I hope we are looking for the good results, to promote them.
Enough energy going in the direction of good results from capitalism will out-weigh the potential for damaging results. It seems obvious from history and in current news that results moving in the direction of increased benefits for all on an even basis is going to produce longer lasting prosperity. When one or a few benefit greatly, others, somewhere are probably paying the price, probably, as history teaches, to their disadvantage.

I think Ed Freeman has had this “better form of capitalism” figured out for quite some time. At the heart of his framework is the multi-stakeholder operating model. As more and more companies adopt this model and it becomes an integral part of their culture, we’ll need less regulation and government oversight than we even have now. The reason “many business leaders are blind to the new operating environment and new expectations” is because our reward systems, at least for public companies, are still geared toward the short-term, profit maximization philosophy that continues to fuel the quarterly earnings game. Large institutional investors have a major role to play in this regard. Until leaders that safeguard the long-term health of their businesses by creating effective relationships and working closely with a range of key stakeholders are noticeably rewarded with lower capital costs, the transformation of capitalism that Dr. Googins describes in this article will take much longer than it otherwise needs to. The adoption of longer term, more sustainable governance principles is not a very attractive option when Wall Street and shareholders consistently call for CEO and CFO heads to roll if they miss a couple quarterly EPS targets.

We’re in this economic mess because some financial institutions were putting good short-term numbers on the board and their peers either needed to play the same game or pack their bags. In an ideal world, the few leaders who raised a cautious hand and refused to play along would have been rewarded with higher stock prices and job security for their more long-term minded view. But that’s not the world we live in today. Maybe this wake up call will finally change the mindset of the investment community. But even now, few companies dare to choose not to lay people off because it’s not in the long term best interest of their company. Any leader that decides to take a short-term cash hit to keep people employed (a very key stakeholder), will undoubtedly be penalized by Wall Street analysts. And so it goes.